CNBC – As losses mount, hedge funds no longer have the ability to drive speculation in the markets, Hugh Hendry, chief investment officer and partner at Eclectica hedge fund told "Squawk Box Europe" on Tuesday.

"There is no role for speculation or speculators today. This is kaput," Hendry said. "If we were Second World War generals, we’ve exposed our flanks. We’ve been wiped out. This is about fundamentals … this is about losing money."

As the crisis unfolds, the policymakers’ focus should shift from the threat of inflation to that of the world economic downturn, which could be more severe than economists anticipate, he said.

China, which many believe will balance out slowdowns elsewhere, will struggle if difficulties in the U.S. continue, while the current spike in producer prices is just a hangover from rising oil prices earlier this year, Hendry said.

"I fear that the central bankers of the world are fighting yesterday’s battle," he said.

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